Turquoise Hill Resources Ltd (TRQ) Q3 2021 Earnings Call Transcript

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Turquoise Hill Resources Ltd (TRQ)
Q3 2021 Earnings Call
Nov 3, 2021, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the Turquoise Hill third Quarter Financial Results Conference Call. At this time, all lines are in a listen-only mode and following the presentation we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded today, Wednesday, November 3, 2021.

And I would now like to turn the conference over to Mr. Roy McDowall. Please go ahead, sir.

Roy McDowall -- Head of Investor Relations & Corporate Communications

Thank you, Michelle. Good morning. I'm Roy McDowall, Head of Investor Relations and Communications. Welcome to our third quarter 2021 financial results conference call. On Tuesday, we released our third quarter 2021 results press release, MD&A and financial statements. These items are available in our website and SEDAR. With me today on the call is Steve Thibeault, our Interim CEO; Luke Colton, our CFO; and Jo-Anne Dudley, our COO.

This call and presentation includes certain forward-looking statements and information. We refer you to the forward-looking statements section of the Annual Information Form dated March 8, 2021, supplemented by our MD&A for the 3 months and 9 months ended September 30, 2021.

Now, I'd like to turn the call over to Steve.

Steve Thibeault -- Interim Chief Executive Officer

Thank you, Roy, and good morning to everyone. Thank you for joining us for our third quarter 2021 earnings call. Jo-Ann, Luke and I will be available for Q&As following our presentation. Please note, slide two and three contain our cautionary statements, and I would encourage you to read through them.

Turning to slide five, the Oyu Tolgoi open pit and underground workforce posted an all-injury frequency rate of 0.13 one-3 for the 9 months ending September 30, 2021, an improvement over the rate from the 6 months ended June 30, 2021. This is an impressive achievement considering the challenges paused by COVID-19.

The open pit operation continued uninterrupted through the quarter and produced 41.9 thousand tonnes of copper and over 130,000 ounces of gold. We are maintaining our 2021 production guidance of 150,000 tonnes 280,000 tonnes of copper and 400,000 ounces to 480,000 ounces of gold.

Although the site operated at less than 50% of its planned personnel levels in the third quarter due to the COVID personnel restrictions, the team was able to make progress on the underground project. The sinking of Shaft 4 was restarted during the quarter and in October, we began the commissioning of the material handling system number one.

While the volume of concentrate shipments customers improved during Q3 versus Q2, site inventory remains above target levels and consequently, we will maintain our force majeure until that imbalance is corrected.

All technical undercut readiness activities have been completed and Oyu Tolgoi from a technical perspective have been ready since July 2021 to commence the undercut. Undercut commencement remains delayed by a number of factors, including the pending resolution of certain non-technical criteria essential for the start of the caving operations, obtaining the approval of all OT LLC Board [Technical Issues] for additional investment to progress the underground development, to greenlight the negotiations with the project finance lenders on debt reprofiling, obtaining outstanding required regulatory approvals and securing an agreement on the pathway to meet Oyu Tolgoi long-term power requirements. All of these issues are the subject of ongoing discussion between the company, Rio Tinto, and the Government of Mongolia.

Having just returned from 6 weeks in Mongolia where I was involved in negotiation, I can say that I was encouraged by the good efforts of all parties to reach a solution so that the underground development can achieve success through a process of mutually beneficial cooperation. I can also attest that all parties are aware of the urgent needs to remove the obstacles to the start of the undercut to prevent further delays and to preserve the economic value of the project. To further that process, TRQ and Rio Tinto recently tabled a comprehensive proposal with the government that we believe address government key concerns and interest that the project remains a compelling value proposition for all partners.

From a financial perspective, our base case incremental funding requirement has increased to 3.6 billion as at September 30 from 2.4 at the end of Q2. The increase reflects preliminary information provided by Oyu Tolgoi regarding the impact of the daily to the initiation of the undercut, as well as additional underground development capital of $140 million in non-costs -- in non-COVID cost impacts. Our available liquidity of $0.8 billion is expected to be sufficient to fund the Company's requirements, including funding on the ground capital expenditure into Q3 2022.

Slide 6 showcases both the excellence of the Oyu Tolgoi team and the contribution gold provides to our C1 cash costs. During Q3, Oyu Tolgoi produced approximately 42,000 tonnes of copper and over 130,000 ounces of gold. This was an increase over Q2 and was driven by the scheduled move to the higher-grade areas of Phase -- our Phase 4B. Mill throughput remain above nameplate capacity, but was slightly lower than Q2 due to the processing of harder ore as well as lower SAG mill availability due to maintenance.

For the remainder of 2021, we expect that the mill feed will continue to be comprised of higher-grade Phase 4B and lower grade stockpile, and we remain on track to meet our updated 2021 production guidance of 150,000 tonnes to 180,000 tonnes of copper and 400 ounces to 480 ounces of gold.

With that, I will turn the call to Luke.

Luke Colton -- Chief Financial Officer

Thanks, Steve, and good morning to everyone. If you could please turn to slide seven, I'll provide a summary of our key financial metrics. Revenue for Q3 2021 increased by 135.6% from Q3 of 2020. Gold revenue increased by $193 million and that's driven by a 338% increase in the volume of gold in concentrate sold, and that's due to mining higher grade areas of Phase 4B,partially offset by a 6% lower gold price. Copper revenue increased by $164 million from Q3 2020, and that's due to a 40% higher copper price and a 35% increase in copper volumes due to higher grades.

Cash generated from operating activities before interest and tax was $355 million in Q3 2021, and that's $262 million higher than Q3 2020. Q3 2021 gross margin was $324 million higher, due mainly to the increase in revenues. This was partially offset by unfavorable movements in working capital and deferred revenue, as contingency measures put in place during Q2 2021 to improve OT's short-term liquidity unwound during Q3 2021.

Income per share attributable to owners of TRQ decreased from $0.64 per share in Q3 2000 to $0.17 cents per share in Q3 2021. This decrease mainly reflects the impact of a $300 million deferred tax asset de-recognition in Q3 2021, which result -- arose as a result of an overall weakening and taxable income forecast due to the underground delays. This impact was partially offset by the increase in gross margin previously mentioned.

C1 cash costs and all-in sustaining costs in Q3 2021, both benefited from a $193 million increase in gold revenue credit versus Q3 2020. For all-in sustaining cost, this benefit is partially offset by the higher royalties that OT paid on the higher revenue.

Capital expenditure in Q3 2021 was $217 million, and that comprised of $201 million underground and $16 million open pit. Capital expenditure for the same period last year was $255 million. The impacts of COVID-19 restrictions and controls drove the lower than expected capital expenditure and are expected to continue into Q4 2021. As a result, TRQ's full-year capital guidance has been reduced, $80 million to $100 million for the open pit is the revised guidance, and for the underground, it's $0.8 billion to $0.9 billion.

If you could turn to slide 8, you will see that Turquoise Hill had liquidity of $0.8 billion at the end of Q3 2021, which it expects will be sufficient to meet the Company's requirements into Q3 2022. As disclosed in the Company's Q3 2021 production update, its base case incremental funding requirement increased to $3.6 billion and that's primarily as a result of the forecast delay to sustainable production for Panel Zero, which is now expected to be in H1 2023, which is broadly in line with the forecast 6 months' delay to undercut commencement.

Additionally TRQ base case incremental funding requirement incorporates other assumptions, including update to metal price assumptions, the definitive estimate which estimated a development capital cost of $6.75 billion and then COVID-19 restrictions through the end of Q3 2021, which have resulted in a cumulative increase of $140 million to the estimates included in the DE, and that's through the end of September 2021, the impact of the open pit mine redesigns in response to previously reported geotechnical events, the resequencing of open-pit ore phases due to the delayed commitment of the [Technical Issues] and of course the impact of COVID-19 restrictions and controls on the open pit waste movements. Further information on all of that is provided in the Company's Q3 2021 MD&A.

The Company's estimated incremental funding requirement as well as its liquidity outlook will continue to be impacted either positively or negatively by various factors in addition to the aforementioned, and many of those are outside the Company's control.

To address its forecast funding and liquidity requirements, the Company's funding plan includes the Heads of Agreement reached with Rio Tinto in April 2021 and of course its successful implementation is subject to achieving alignment with the relevant stakeholders, including Rio Tinto, existing lenders, potential new lenders and the Government of Mongolia, as well as market conditions and other factors. And those factors would include resolution of the remaining outstanding non-technical undercut criteria and other items that form part of the ongoing negotiations with the Government of Mongolia.

Any significant further delays to the initiation of the undercuts or non-fulfillment of any of the other CTs identified in the Heads of Agreement could adversely affect the ability of the Company and OT LLC to obtain additional funding or reprofile existing debt as contemplated within the time frame set out in the Heads of Agreement. However, the Company is currently in discussions with Rio Tinto to consider potential adjustment to the time frame and other aspects of the Heads of Agreement, which would help to address the Company's forecast funding and liquidity requirements.

And with that I'll hand over the call to Jo-Anne Dudley, our Chief Operating Officer.

Jo-Anne Dudley -- Chief Operating Officer

Thank you very much, Luke. Let's turn to slide nine for the underground development and exploration update. COVID-19 continued to significantly impact the Oyu Tolgoi Mine in Q3 2021. Constraints on personnel numbers on site and domestic and international travel adversely impacted both open pit operations and the underground project. The additional 2021 development cost impact to the non-COVID 19-delays up to September 30, 2021 is estimated to be approximately $40 million. As COVID-19 remains ongoing, the Company will continue to monitor impacts and update the market as appropriate.

Despite COVID-19 challenges, commissioning of Material Handling System 1 commenced during the quarter. While not required till undercut commencement, a fully commissioned Material Handling System 1 is required for sustainable production.

While shafts 3 and 4 did not progress during Q3, Shaft 4 sinking recommenced in October, which is a great step-forward for the project. Readiness work for Shaft 3 sinking continues to progress. Although shafts 3 and 4 are not required to support the commencement of Panel Zero, they are required to support productions from panels 1 and 2 during the ramp-up to 95,000 tonnes per day. The commencement of the undercut is a key milestone and it is critical to ensure that once commenced, the undercut and drill point construction continues unimpeded.

From a technical perspective, all lateral development and production drilling to initiate the undercut is complete and supporting infrastructure for Panel Zero production is on track for completion under the current site conditions. Exact timing of the undercut is dependent on the satisfaction of remaining outstanding non-technical criteria.

I'll now cover exploration progress in the quarter. Turquoise Hill through its wholly owned subsidiaries, Asia Gold Mongolia LLC, Heruga Exploration LLC and SGLS LLC operates an exploration program in Mongolia on three licenses that are not part of Oyu Tolgoi. Despite restrictions on people movements in Omnogovi and Dornogovi provinces in Q2, the exploration team was able to fully complete our planned 2021 field work during Q3.

Safety remains our first priority and appropriate measures will be maintained to protect our exploration team, contractors and the communities in which we work. Reaffirming our commitment to local communities, the exploration team made COVID-19 aid donations to the Mandakh and Khanbogd Soum during the quarter.

With that, I will now hand the call back to Steve.

Steve Thibeault -- Interim Chief Executive Officer

Thank you, Jo-Ann. Turning to slide 10, I would like to focus on the key milestones to take us to sustaining production of Panel Zero. As we have stated before, from a technical perspective Oyu Tolgoi has been ready to initiate the undercut since July 2021. Despite the COVID 19 related constraint, Q3 saw the breakthrough of the conveyor decline, Shaft 4 sinking recommence and preparatory work for the shafts we're sinking has continued.

The breakthrough of the service decline is forecast for this month and completion of the Material Handling System 1, and the first on-footprint truck chute are broadly in line with the definite estimate. The Oyu Tolgoi team from my point of view has done them the amazing job. The key outstanding issue facing Oyu Tolgoi is resolving the non-technical criteria to initiate the undercut.

Primary among these is obtaining the approval of all the directors of Oyu Tolgoi Board the necessary additional investment to advance the underground development. The longer the delay in approving the budget uplift, the greater the risk that Oyu Tolgoi will have to slow down the work on the underground. We continue to integrate engage with the Mongolian Government and Rio Tinto to resolve all of the outstanding non-technical issue that must be resolved before caving operation can comments.

To further that process, TRQ and Rio Tinto have tabled with the government a comprehensive proposal that we believe addresses the government's key concerns while maintaining economic value of the project for all stakeholders.

Before I'll hand to line for Q&As, I want to express my appreciation for the effort of the Oyu Tolgoi team. We delivered a solid performance in Q3 under what continued to be challenging circumstances. Thanks to them, we had good production from the open pit and we were able to advance elements of the underground with less than half of the number of worker plan. That they were able to do this while maintaining Oyu Tolgoi's safety performance is noteworthy and commendable.

And with that, we will begin the Q&A.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Technical Issues]. Please standby for your first question. Your first question comes from Jackie Przybylowski of BMO. Please go ahead.

Jackie Przybylowski -- BMO -- Analyst

Thanks very much. I guess my first question, I know in the release that you gave some guidance in terms of delays for shafts 3 and 4 and for panels 1 and 2 and you've given those in number of months of delay from the previous disclosure in the estimate. I can't find in the definitive estimate where those timelines were previously disclosed. So, could you either tell us when you're expecting now shafts 3 and 4 and panels 1 and 2 or at least what's the definitive investment you're envisioning for those that, because I just -- I can't see it. Thank you.

Steve Thibeault -- Interim Chief Executive Officer

Okay. Jo-Ann, you want to take that question?

Jo-Anne Dudley -- Chief Operating Officer

Yes, sure. Thanks, Steve and thanks, Jackie. In the definitive estimate -- sorry, in this investment, we haven't given the exact date. Certainly in the technical report we gave some indications. But ultimately, what's important about those shafts is that they're supporting infrastructure for the ongoing development of panels 2 and -- which is the next panel that'll be mined following Panel Zero and Panel 1. And so, as per the disclosure in the MD&A, we have highlighted the important time frames that drive impact to the ramp-up. And so, we've focused on what was -- what's important when it comes to the ramp up of the mine to 95,000 tonnes a day. Hopefully that's helpful.

Jackie Przybylowski -- BMO -- Analyst

Yeah, I guess, I mean they -- I hope you can appreciate, it's a little difficult for us. You've said, so for example shafts 3 and 4 have a 9-month delay but we don't really know from what to what. It's just a little bit difficult for us to do to model that. But -- I mean if there is any other color you can give, but I guess we work with the info that you gave us, that's all that we can have. Okay, anyways maybe I'll just ask a different question.

We saw yesterday, your -- one of your shareholders put out an open letter and was asking for some clarity on what your response to the independent review of geotechnical issues or sort of delays and cost overruns would be. Is there any information or response or color that you can give in terms of what Turquoise Hill's view of that independent report is or what your response to that might be?

Steve Thibeault -- Interim Chief Executive Officer

Yeah, Jackie, what we're doing, we're conducting a detailed review of that particular report, OK. And overall I meant that, that report is a confidential report at the OT Board but we're conducting a detailed review. We're seeking a number of different -- of clarification and supporting detailed explanation for certain broad conclusion that warrant report. And when will I have concluded this detailed review, we'll update the market as appropriate.

Jackie Przybylowski -- BMO -- Analyst

Okay, thank you very much. That's all my questions.

Steve Thibeault -- Interim Chief Executive Officer

Thank you, Jackie.

Operator

Your next question comes from Orest Wowkodaw of Scotiabank. Please go ahead.

Orest Wowkodaw -- Scotia Capital -- Analyst

Hi, good morning. I've got a couple of questions too. First of all, can you walk us through the increase to the funding gap from $2.4 billion to $3.6 billion? And a couple of angles to this, like your liquidity -- estimated liquidity runway of Q3 2022 was unchanged, right. So to me, that would suggest that really the funding gap is beyond what we -- from a timeline perspective is further out. But maybe what would be really helpful for us to get some color is what kind of commodity assumptions are baked into this, what kind of production assumptions from the open pit are baked into this for 2022, 2023 and I guess 2024? Maybe we could start there if possible.

Steve Thibeault -- Interim Chief Executive Officer

Okay, very good. Luke, you want to take that question?

Luke Colton -- Chief Financial Officer

Yeah, sure Steve, happy to do that, and thanks for the question. There are actually a few questions in there. So, I'll do my best to answer them and if I miss anything, please do let me know. At a high level, we did have a sort of $1.2 billion increase to the funding gap in the quarter. You'll remember from our Q2 2021 MD&A that the funding gap at that time increased from $2.3 billion, $2.4 billion, and that was primarily due to a resequencing of ore phases of the open pit mine and that was largely offset by improved commodity price forecasts. And in terms of commodity price forecasts, we -- what we use effectively is consensus pricing at the balance sheet date. So, that would be the assumptions that we use.

For Q3 2021, the primary cause of the increase from $2.4 billion to $3.6 billion is the deferral of revenue caused by the delay to the start of the undercut and sustainable production. There is also additional COVID-19 related costs of $40 million in the quarter. And that brings the total as of 31st of September 2021 to $140 million.

The Company has repeatedly and consistently warned that a significant delay to the start of the undercut would how the material impact on project schedule, including the timing of sustainable production for Panel Zero. And that could adversely impact the timing of expected cash flows from the underground, thereby increasing the amount of the incremental funding requirements. And obviously, when that became apparent in Q3 2021, we felt it was important to update the market and that's what we've done.

So, let me stop there. Hopefully, I've answered most of your questions. But let me know if you've got any follow-up there.

Orest Wowkodaw -- Scotia Capital -- Analyst

Well, I guess what kind of production assumptions are baked in to this estimate over the next few years?

Luke Colton -- Chief Financial Officer

Yeah, so we haven't actually issued production guidance beyond 2021. We are still working to be able to issue our production guidance for 2022. So, I'm probably not going to be able to answer your question super specifically. But obviously, the impact of the 6-months' delay to the sustainable production is having the impact of some of the anticipated underground production out into later periods. And that's what's causing the main reason anyway that's causing the funding to stop over the sort of critical period, which is kind of 2022 through 2024.

Orest Wowkodaw -- Scotia Capital -- Analyst

Okay. And then in the release 2 weeks ago, it disclosed your estimate for Panel Zero sustainable production was January 2023, in the release today it says just H1 2023 and I realize January is in H1, but are we to interpret that, that it's flip will be on January at this point?

Steve Thibeault -- Interim Chief Executive Officer

Jo-Anne, would you like to give some color to that change that we did?

Jo-Anne Dudley -- Chief Operating Officer

Yes, no problem. Thank you, Steve. Thank you, Orest. Yes, so we've had more time with information since the QOR release. And if we look at -- if we look back at the technical report OTTR20, the -- broadly the time frames between the key milestones laid out in the OTTR20 remain consistent with the current plan. And so, we have had a 6-month delay to the commencement of undercut and a similar delay consequently to sustainable production. So -- but we need to remember, we actually haven't started the undercut yet and so there does remain some uncertainty here, and the disclosure reflects that. It is important that the remaining items preventing the commencement of the undercut are resolved as quickly as possible and the team is very focused on working with our stakeholders to achieve that.

Orest Wowkodaw -- Scotia Capital -- Analyst

Okay, and maybe a final question from me at this point. Do you see any opportunities to improve the funding gap through resequencing of the open pit or perhaps resequencing something in the underground? Is there any opportunity to reduce that $3.6 billion number at this point?

Steve Thibeault -- Interim Chief Executive Officer

Jo-Ann, do you have a bit of color around the optimization?

Jo-Anne Dudley -- Chief Operating Officer

Yes, thank you. Thank you, Steve. Yes, so the team are working on developing and investigating optimization opportunities to try to bring metal forward into the funding gap period, and we are in the preliminary stages of that analysis. It's important to note that while we'll do everything we can to accelerate the work, we believe our current forecast is realistic and achievable. It is a normal process for Oyu Tolgoi to look for those opportunities to bring metal forward and there is some time for that to happen. So, the optimization work will continue and we will come back and announce any results of the work when we are able to.

Orest Wowkodaw -- Scotia Capital -- Analyst

Okay. And sorry, one more if I could. Just Steve, you talked about that you're reviewing the results of the independent consulting group. I mean that report was submitted 3 months ago. When could we realistically anticipate that your review of your questions and clarification is completed and the market can get an update there? What's the timing?

Steve Thibeault -- Interim Chief Executive Officer

No specific timing, but I could say that we're getting close to be finalized. And like I said, for us it's important to have a good review and have the supporting details for the explanation. And so, we're working on that. So it shall be -- it will come. It will come, I can tell you.

Orest Wowkodaw -- Scotia Capital -- Analyst

So, it will come this year or is it likely now a 2022 event?

Steve Thibeault -- Interim Chief Executive Officer

Orest, I -- my goal would be that it would come this year. Okay?

Orest Wowkodaw -- Scotia Capital -- Analyst

Okay.

Steve Thibeault -- Interim Chief Executive Officer

But...

Orest Wowkodaw -- Scotia Capital -- Analyst

Thank you.

Steve Thibeault -- Interim Chief Executive Officer

I mean it's not -- the review is not finished and that could change, but my wish would be that it would be completed this year. Okay?

Orest Wowkodaw -- Scotia Capital -- Analyst

Thank you.

Steve Thibeault -- Interim Chief Executive Officer

Thanks, Orest.

Operator

Your next question comes from Craig Hutchison, TD Securities. Please go ahead.

Craig Hutchison -- TD Securities -- Analyst

Hi, good morning, everyone.

Steve Thibeault -- Interim Chief Executive Officer

Good morning, Craig.

Craig Hutchison -- TD Securities -- Analyst

Just a follow-up question on the -- good morning, Steve. Just a follow-up question on the financing shortfall of $3.6 billion, are you guys able to tell us what time frame that is -- that shortfall occurs? Is that like a late 2022, early 2023 or like when do you consider the absolute low in terms of your cash flow requirements?

Steve Thibeault -- Interim Chief Executive Officer

Okay, Luke, you want to handle that?

Luke Colton -- Chief Financial Officer

Yeah, sure. So at the moment, we have liquidity that takes us through -- that takes us into Q3 of 2022 next year, so obviously post that absent any other sort of corrective measures, the funding gap would start to build up in -- beginning in Q3 2022 and then -- the sort of critical funding gap period, Craig, is that as that funding gap sort of builds up to the $3.6 billion is during that 2022 to 2024 period.

Craig Hutchison -- TD Securities -- Analyst

Okay. And in terms of I guess the cost overruns of $0.2 billion, any way you can kind of break it down roughly in terms of what was attributed to the open pit and what was attributed to the delay to the underground?

Luke Colton -- Chief Financial Officer

Yeah. So again, Craig, in -- for Q3, the majority of the increase was really related to the delay to first sustainable production and -- that was caused by the delay to be undercut. In Q2, we had some adjustments for things like resequencing of the open pits and obviously pricing assumption. But the main change in Q3 is really the impact of the 6-month delay to the undercut and the impact of that on sustainable production.

Craig Hutchison -- TD Securities -- Analyst

Okay. And then just a last one from me.

Steve Thibeault -- Interim Chief Executive Officer

Hey, Craig, sorry, Craig to interrupt. I'm not sure if you mentioned costs, but there is no -- I mean the only cost increase -- I just want to make sure, maybe I misunderstood, but there is no cost increase, the cost increase, there's one related to the COVID but really what it is, is a shift in the revenue and the production. So, that's what were -- when we come to $1.2 billion increase in the funding, it's mostly related to revenue or shift in the revenue. Maybe I was not -- I misunderstood the question.

Craig Hutchison -- TD Securities -- Analyst

No, fair enough. [Indecipherable] And then maybe lastly from me, I mean just a couple of months back there were some -- there was an article in the media talking about pretty specific numbers around some of the concessions that yourselves and Rio Tinto are willing to offer the Mongolian Government. They quoted a number of $350 million of additional revenue over the next 3 years in addition to existing royalties and taxes. I was just wondering, does the $3.6 billion financing shortfall, does not account for any concession to the Mongolian Government or should we think of that as something on top of that number?

Steve Thibeault -- Interim Chief Executive Officer

Yeah, I will. I will answer that. No, it doesn't include that. And the reason, Craig, is that these -- we're in negotiations. There is a lot of detail to go through. The final outcome of the negotiation is not known yet. So I would say, nothing has been included in the current funding that you -- we communicated.

Craig Hutchison -- TD Securities -- Analyst

Okay, thanks guys.

Steve Thibeault -- Interim Chief Executive Officer

Okay, thank you Craig.

Operator

Your next question comes from Ralph Profiti, Eight Capital. Please go ahead.

Steve Thibeault -- Interim Chief Executive Officer

Good morning, Ralph.

Ralph Profiti -- Eight Capital -- Analyst

Thanks for -- good morning. Thank you for taking my questions, Steve. The first one is on -- I'm wondering what the significance is of the $5.3 billion, which is the original feasibility study from 2016 capex, right? That is a number that we're going to be reaching very, very soon and is the only thing that's actually been approved by all parties in the OT LLC. Is there anything that prevents OT from continuing to spend their budget, say, in 2022 without the approval of the incremental budget from the Government of Mongolia?

Steve Thibeault -- Interim Chief Executive Officer

Yeah, no, the -- it's a good point, Ralph, because the 3 is pretty much committed at the moment and we cannot spend more than that, OK. That's very important. We need to understand that this is a very, very large project. This is a project that is extremely complex, OK. And what we need to do, we need to move that project with the support of all shareholders. We cannot run this project, Ralph, from a month to month basis because you have long term -- in order to make it efficient, you need to have long-term commitment, and what we're reaching right now we have -- we're reaching the end of the budget. And definitely what needs to happen now is we need to have the additional investment of the $1.4 billion, the one that we talked in the definite estimate, OK, in the additional investment required to complete the underground mine. And we need to do that from all -- with all of the -- with all shareholders including the EUT or slash the government, and Rio Tinto and TRQ, OK. That's very important. And the reason why is that we need to proceed with the undercut, we need to resolve the regulatory approval, we need also to get support for the discussion for financing. So, there's a lot of things that must be done and we cannot continue managing on a monthly basis or need to be -- to go above budget.

Ralph Profiti -- Eight Capital -- Analyst

Okay. Yeah, that makes sense, OK. Okay, my second question is on something you talked about in your commentary, Steve, about -- and it was in the previous question, about this debt forgiveness and the accelerated returns for the Government of Mongolia. Within that proposal that you just presented, can you maybe outline what is the process for review and when are you hoping to get some type of an answer?

Steve Thibeault -- Interim Chief Executive Officer

Okay. As I said -- I mean, like I said, well, I'd been in Mongolia for 6 weeks. I came back for that -- for the quarter in that review here. This Friday, I'm going back. I was quite encouraged by the tone of the discussion, the discussion with the government and also more importantly, the commitments that everyone is having, OK, and having the right now. So, there is a lot of discussion. Even this week, I was involved in discussion.

What's important, Ralph, is that we all have a common objective here. The objective is related to make sure that the underground -- and that share by TRQ, Rio Tinto and also the government, the Government of Mongolia, OK. And yes, the objectives are continuation of the underground development, the commencement of the undercut and the sustainable production. So, we are committed here.

And in term of proposal, I mean the proposal from our point of view really address key concern that the government has, OK, which were mostly around the depth and when they would get dividend. But it's always change [Phonetic], and Ralph, you would know, a negotiation is not finished until it's finished, and we're having discussion on the forms and different elements on that. So, I cannot commit. I cannot give you the detail. But what I can tell you is that where we are -- and also the government, we're all focusing to move forward and we are working very hard to make it happen.

Ralph Profiti -- Eight Capital -- Analyst

Great, understood. Thank you, Steve.

Steve Thibeault -- Interim Chief Executive Officer

Okay. Thanks, Ralph.

Operator

Your next question comes from Dalton Baretto, Canaccord. Please go ahead.

Dalton Baretto -- Canaccord Genuity -- Analyst

Thanks.

Steve Thibeault -- Interim Chief Executive Officer

Good morning, Dalton.

Dalton Baretto -- Canaccord Genuity -- Analyst

Good morning, Steve. Most of my questions have been answered, but I'm hoping I can follow-up on a couple of Ralph's questions there. So first of all, just on the $5.3 billion versus the $6.75 billion, is there an option at all to maybe approve a small portion of the increase, so you don't have to go tools down on November 30th?

Steve Thibeault -- Interim Chief Executive Officer

Yeah, it is a good question, Dalton, but like I said -- I mean, yes, that's a possibility, OK. We could do that and the government and the Company could decide that for -- in order to continue and -- on the discussion on the negotiation to do that. So yes, that's an option. However, it's not something that we can do on a perpetual basis, OK. It's -- Dalton, it's like building your house and you're just approving a weekly budget. You would have called them to -- eventually to [Technical Issues] all the activities. So in other words, yes, it can be done, but it's not the best and favorable solution. And what we're looking eventually is to really to get a support for the entire budget and be able to move with the undercut as well.

Dalton Baretto -- Canaccord Genuity -- Analyst

Understood. And then just maybe in terms of what you have disclosed around the negotiations, Ralph mentioned the debt reduction, and then there's also some talk about accelerated returns. On the debt reduction, so with the 2016 agreement, part of that was knocking down the shareholder loans from $7 billion to $2.8 billion. Are we talking kind of the same order of magnitude here?

Steve Thibeault -- Interim Chief Executive Officer

Dalton, I'm not commenting on negotiation. I'll be able to -- I hope I'm going to be able -- I wish I'll be able to tell you in couple of weeks and I'll give you all the detail there. But in the meantime, things are changing, things are going. So, I'm not commenting on the detail, OK.

Dalton Baretto -- Canaccord Genuity -- Analyst

Okay, that's understandable. So, maybe I'll move on then. This consultant's report that you guys are reviewing, how much of a role does the resolution of some of these inconsistencies that were identified play in terms of the government actually agreeing to a deal?

Steve Thibeault -- Interim Chief Executive Officer

I mean it's really at the OT Board that is being -- is this something that needs to be resolved, I admit, but without going through the detail, this is something that is being [Technical Issues] by the OT Board and does -- that's up to the Board to decide on the details there.

Dalton Baretto -- Canaccord Genuity -- Analyst

Okay. And then just maybe one last one. I'll ask you the same thing I asked you last time. If you come to a deal with the negotiating committee, does that proposal have to be ratified by parliament?

Steve Thibeault -- Interim Chief Executive Officer

And I have the same answer as I did last time, Dalton. I think that I'll leave that to the government exactly how they want to do that. I would say that's a possibility that they will do that. But I'm sure that if they do, they will -- they're confident that the process will be quite fast. But I cannot comment how they will do it.

Dalton Baretto -- Canaccord Genuity -- Analyst

Okay, thanks Steve. That's all from me. Good luck.

Steve Thibeault -- Interim Chief Executive Officer

Thank you very much. Great, proceeded [p].

Operator

Your next question comes from Orest Wowkodaw, Scotiabank. Please go ahead.

Orest Wowkodaw -- Scotia Capital -- Analyst

Hello, thanks for taking my follow-up. Just following up again on [Speech Overlap] -- yeah, thank you. But just following on the line of questions that Dalton and Ralph were asking you, like from an outsider perspective, it feels like there is little progress in terms of these negotiations with the government to deal with the non-technical criteria here. And where I'm trying to get a better understanding of, I mean how long can this limbo continue for Rio Tinto and Turquoise Hill decide that you can't keep the project in this holding pattern and we need to do a tools-down type of statement like we saw in 2015? Like, is that a real possibility?

Steve Thibeault -- Interim Chief Executive Officer

Okay, two things Orest. You mentioned little progress, I would say that I hope my message is clear that there are -- there is definitely a strong commitment and also a lot of work that is being done at the moment. So, if I take the government as very generous toward us [Indecipherable] and they are taking a lot of time on that, we have different committees, so this is a difficult negotiation and Orest, you would definitely agree with me on that one. And it's -- I would not say little progress, it is -- I mean it's an intense negotiation at the moment, OK.

How long can we stand up for that process? I mean, my answer is I cannot be clear on that. We are at the -- we are on the inflection point here, OK. This is -- we are at a time where we have spent the money that we had not spent, I say, committed the money that we had approval or was approved. We cannot continue that project. And I would say decision -- unless there is a partial or a full budget, we cannot continue managing that budget like that and we don't have -- we won't have the mine. So decision needs to be made, it needs to be made now, OK. That's where -- we're at the point where we need to make a decision and move on.

Orest Wowkodaw -- Scotia Capital -- Analyst

And if there is no...

Steve Thibeault -- Interim Chief Executive Officer

Sorry Orest, I wasn't [Indecipherable]. What we need to do, we need to have an agreement, not a decision, we need to have an agreement and we are working extremely hard to make it happen. That's what I wanted to say exactly.

Orest Wowkodaw -- Scotia Capital -- Analyst

Okay. Has there been any agreement on any of the major issues so far that you can comment on?

Steve Thibeault -- Interim Chief Executive Officer

I cannot comment on that.

Orest Wowkodaw -- Scotia Capital -- Analyst

Or is it all or nothing type of agreement?

Steve Thibeault -- Interim Chief Executive Officer

You -- Orest, you know that in negotiation, you're sort of different point -- you were giving all points, you go further, you come back, I cannot comment until it's finished.

Orest Wowkodaw -- Scotia Capital -- Analyst

Okay. But just -- Steve, just to clarify what you're saying, like you say you are at an inflection point here, so does that imply that if there is no agreement in any kind of timely manner that we could see a tools-down type event ahead or am I misinterpreting what you're saying?

Steve Thibeault -- Interim Chief Executive Officer

No, I would say that if we cannot reach an agreement in the near future, we'll be forced -- we'll need to consider very unattractive option and that includes the risk of having to start to suspend some work because we won't have the budget, Orest.

Orest Wowkodaw -- Scotia Capital -- Analyst

Okay, thank you very much. I appreciate the color, Steve.

Steve Thibeault -- Interim Chief Executive Officer

Okay, very good, thank you.

Operator

Your next question comes from Jackie Przybylowski, BMO. Please go ahead.

Jackie Przybylowski -- BMO -- Analyst

Thank you. I'll try not to...

Steve Thibeault -- Interim Chief Executive Officer

Hi, Jackie.

Jackie Przybylowski -- BMO -- Analyst

Hi -- to beat a dead horse here. But I think Dalton raised a good point about the -- whether this needs to be ratified in parliament. And to go back to your response to Orest that you'd need to see an agreement fairly soon in order to keep progress on construction, what do you define an agreement does? And if the Mongolian Government decided that this did needs to be ratified by parliament, would you need that whole process to be finished before you've considered that you've reached an agreement?

Steve Thibeault -- Interim Chief Executive Officer

No, I mean it's -- yeah, I'll do -- answer to that, Jackie. There are definitely key points that needs to be resolved, OK, when do we need to -- we need to agree to proceed with the additional investment of $1.4 billion, OK. That -- so going from that slide $5.4 billion to the 6 point something -- $6.7 billion, I think that we talked before, so there is a decision made to be -- on that one, so the project team can start to commit the money. We need to also to have support [Technical Issues] financing because we'll need money and so that's pretty clear.

There's still some regulatory approval that needs to be done, OK. But it all depends. I mean it's -- we want -- we are in that situation right now. We need to. There is a pressing moment to make it happen, OK. And definitely, I'm hoping that the government will be in a position to approve quickly. And now -- and Jackie, well, depending on circumstances we'll adjust. But the uplift of the investment or the additional investment is a key to be able to move to support. So, the element [Phonetic] I mentioned are very important and that we see the government moving on those things. And like I say, I hope that they're going to be able to approve quickly.

Jackie Przybylowski -- BMO -- Analyst

So I mean that's a formal legally binding approval, not an informal handshake sort of approval, is that right?

Steve Thibeault -- Interim Chief Executive Officer

That's what we want. But there is always shades of gray in this -- in these things and I think that one will get there, we'll have to evaluate it. But definitely, a formal -- agreement because the key point here, we want to be able to make that investment and start -- and have the regulatory -- the elements are there. We need those one -- OK, to be able to move. So it's a question of ratification or approval. I mean it will depend what form and what -- where we stand at that time. But definitely, what we want is assurance that we can move safely with that project once we make -- when we make the additional investment.

Jackie Przybylowski -- BMO -- Analyst

Okay, thanks Steve.

Steve Thibeault -- Interim Chief Executive Officer

Okay, thanks Jackie.

Operator

Your next question comes from Richard Hatch, Berenberg. Please go ahead.

Richard Hatch -- Berenberg -- Analyst

Yeah, thanks very much and thanks for taking my questions.

Steve Thibeault -- Interim Chief Executive Officer

Hi, Richard.

Richard Hatch -- Berenberg -- Analyst

Yeah, good morning. I just wonder -- I've got a couple of questions, the first one, I wonder if you might be able to give us any kind of order of magnitude on the impact of the medium-term production profile based on kind of the previous technical report that we've got to kind of work with just off the back of these delays, whether you were unable to give us that?

And then just on that, as you kind of bringing those next panels into production into the medium term, Jo-Anne, how comfortable are you with the geotech? Are you happy that you're not going to have to make any more kind of mine plan revisions with regards to support?

And then secondly, and I'm sorry, I'm flogging the dead horse on this one. But just so I can get it right in my head, is the kind of the very basic order of play, you agree a fiscal terms strike, you agree a budgetary with the various stakeholders in the project, you can then take that to the board of OT LLC that gets approved, and then you can kind of take the project forward and we can kind of progress from there. Is that the kind of the basic way that you're looking at it, get the agreement signed and agreed with the government, then agree on the OT LLC level and then kind of develop the undercut? Thanks.

Steve Thibeault -- Interim Chief Executive Officer

Yeah, Richard, I'll answer the second one and Jo-Anne will do the first. On the commit -- on definitely the increase on -- in the investment of $1.4 billion that we need at the moment is definitely an OT LLC approval, that's where it is. And the EOG directors need support or directions from the government. So, you can understand what would happen in this case. So, that's what would happen.

Jo-Anne, you want to answer the production deal and the production?

Jo-Anne Dudley -- Chief Operating Officer

Yes, no problem Steve. Thank you, Richard, for the question. So just in terms of the impact on the ramp-up, so we would -- so you'd be familiar that in the technical report in Chapter 16 there is a production profile, and so we would see the disclosures announcing an alteration to that profile ramping up to the 95,000 tonnes a day post Panel Zero ramp up. And so, we're seeing that overall ramp up is taking longer in the order of the delay to those -- to the commencement of those panels.

Now, there is ongoing work in this and so it is something that, as we understand the situation more, as shafts are in full progress, there will be a better understanding of where we're heading to a better degree. But that's probably the best I can provide at the moment. There will be ongoing optimization efforts to try to do more with the same ventilation constraints and we will provide any updates we can as they materialize.

In terms of GTECH [Phonetic] and further revisions, with respect to support, I don't know that support is where we would see major revisions, and certainly we've continued to drill and collect more ore body knowledge as is appropriate with a project of this size. And the drilling in Panel 2 North is complete and it's showing our overall less structure than we saw in Panel Zero. But this is still a deep cave and we need to try to minimize risk as we head into production. And so, there are mine design refinements that are going on, as noted in the MD&A. And that work, we'll advise of any material updates to that as they crystallize.

So, we do expect some mine design refinements, but it's all about minimizing risk as we head into production and into the ramp-up. So hopefully that's useful, Richard.

Richard Hatch -- Berenberg -- Analyst

Very helpful. Thanks very much for your time.

Steve Thibeault -- Interim Chief Executive Officer

Thank you, Richard.

Operator

[Operator Closing Remarks]

Duration: 57 minutes

Call participants:

Roy McDowall -- Head of Investor Relations & Corporate Communications

Steve Thibeault -- Interim Chief Executive Officer

Luke Colton -- Chief Financial Officer

Jo-Anne Dudley -- Chief Operating Officer

Jackie Przybylowski -- BMO -- Analyst

Orest Wowkodaw -- Scotia Capital -- Analyst

Craig Hutchison -- TD Securities -- Analyst

Ralph Profiti -- Eight Capital -- Analyst

Dalton Baretto -- Canaccord Genuity -- Analyst

Richard Hatch -- Berenberg -- Analyst

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